The Fujitsu heat pump case – unsubstantiated representations

Late last month, Fujitsu received a substantial fine as a result of the first ever penalty decision under section 12A of the Fair Trading Act 1993 as a result of being found by the District Court to have made unsubstantiated representations about the efficiency of its heat pumps.

The decision was made on the basis of a series of representative charges (essentially one for each unsubstantiated claim) for advertising on Fujitsu’s website and in other forms of advertising.

The focus of the Commerce Commission’s (and therefore the Court’s) attention was Fujitsu’s claims that:

• it had “New Zealand’s most energy effective/efficient heat pump range”
• the e3 range delivers almost five times the heat of the amount of energy used
• its e3 range of heat pumps were the most efficient systems ever – and delivered “$4.92 heat for a $1 power”

The ComCom alleged that these representations were unsubstantiated (and breached both section 12A and 13(e) of the Fair Trading Act) because Fujitsu did not have reasonable grounds for making them – because the performance cited by Fujitsu was achieved only under laboratory conditions and was not likely to be achievable by consumers in real-world conditions.

Fujitsu submitted that the claims (representations) of energy efficiency were evidence-based and were not a complete departure from the truth – and that the offending was inadvertent or careless (not deliberate).  Also, that publication of the representations was relatively small – and that there was no demonstrable prejudice to consumers or profit to the company as a result.

It also appeared that the representations were based on Fujitsu having been awarded more energy stars by the Energy Efficiency and Conservation Authority than any other brand of heat pump in New Zealand – albeit that Fujitsu accepted that the number of stars could not (of itself) substantiate the representations.

Finding

The District Court held that, in the circumstances, the offending that arose due to the unsubstantiated representations was less serious than the more specific representations that had been made in breach of section 13(e) of the Fair Trading Act (that the e3 heat pump delivered $4.92 of heat for $1 of power).  The unsubstantiated claims were largely made in general terms, and were exaggeration, and therefore less likely to influence buyers than the misleading claims (such as that for the e3 heat pump).

However, the dissemination of information was found to be significant and significantly inaccurate – and that all the facts must have been known to Fujitsu including the limitation of the test results.

In sentencing, the District Court took into account:

• the objectives of the Fair Trading Act
• the seriousness of the offending
• whether the offending was deliberate or careless)
• the impact of the offending on consumers – including the need for deterrence

The District Court held that Fujitsu’s management had been careless in making claims based on the energy star ratings – and that the claim that the range could deliver five times more efficiency was approaching gross negligence.

The decision resulted in Fujitsu being fined $25,000 for each of the five (representative) charges for the unsubstantiated representations – plus court costs for a total fine of $310,000.

Lessons

After the decision, the ComCom noted that the conduct involved bold claims about superiority and energy efficiency, made in persuasive terms by a well-known and reputable manufacturer.  Such claims are important to consumers who may be cost-conscious but also concerned about the environment.  Consumers could not verify the accuracy of these claims for themselves, but had to take them on trust.

The Fujitsu case marks a step up from the ComCom’s previous approach of issuing warnings – such as that in an earlier example involving therapeutic claims in relation to amber products.  As a result, the case is a timely reminder to all businesses to make sure they have reasonable grounds at the time they make any claim in relation to any goods or services.  A breach may result in fines of up to $600,000.

The Commerce Commission has published tips for businesses, including:

• Don’t make claims that you don’t have reasonable grounds for believing to be true
• Rely on facts, figures and credible sources of information, not guesses and unsupported opinions
• Keep documentation or other information that you have gathered in the process of sourcing or researching a good or service
• You must have reasonable grounds for claims at the time they are made, substantiating a claim after it was made may not get you off the hook.

Further information

If you would like more information about any of the matters discussed in this note, please contact me.